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AOPA's Title and Escrow services

July 1, 1996

ByJohn S. Yodice

Unless you are in the business of buying and selling aircraft, you are probably only vaguely familiar with AOPA's title and escrow services. These are services that could prove to be very helpful to you. They have been designed to help to protect you in what is likely to be one of the largest financial transactions of your life — the purchase or sale of an aircraft.

Actually, these services include a lot more than just title and escrow assistance; they also include aircraft sales closings, title insurance, and even several reports dealing with the history and condition of an aircraft as reflected in the records of the FAA.

Aircraft title search

The aircraft title search service takes advantage of the fact that the FAA maintains a file on each civil aircraft that has been registered in the United States.

The main purpose of these files is for the FAA to keep track of the aircraft for which it has regulatory responsibility. By law, a civil aircraft may not be flown in this country unless it has been properly registered either in the United States or another country. An aircraft may be registered in the name of its owner only. So, before the FAA will register an aircraft, it must determine that the person applying for registration actually owns it. Since the files must contain evidence of ownership for registration purposes (usually a bill of sale that fits into the chain of title), it is a short step to using these files as a central recording system for all legal interests in aircraft.

And that is what the law has done. For legal interests in aircraft it has charged the FAA with maintaining a central recording system, similar to the state recording systems for real estate. The system serves as a convenience for the flying public, to facilitate the buying, selling, and financing of aircraft. A key element of the law is a provision essentially saying that the recorded filing with the FAA of a document evidencing a legal interest in an aircraft constitutes legal notice to the whole world of that legal interest. The legal notice takes effect as of the time of its filing with the FAA.

It is not a perfect system (for example, a notice of federal tax lien need not be filed with the FAA), but it has provided security to hundreds of thousands of aircraft sales transactions over the years.

With this system in place, it would be foolhardy and risky to buy an aircraft without checking the records to be sure that the person from whom you are buying the aircraft is the owner of record at the FAA. There could be a lien or encumbrance on file against the aircraft, or some evidence of a defect in title that you, as the buyer, don't actually know about. A search of the FAA records will at least disclose what you are charged with knowing. Armed with that information in advance, you can take whatever steps are appropriate to protect your interest.

The FAA maintains these aircraft files in Oklahoma City, in an office appropriately called the FAA Aircraft Registry. These files are open to the public.

You could go to Oklahoma City yourself and search the records. But there is a more practical approach. AOPA has made searching the records at the registry easy and inexpensive. AOPA maintains an office in Oklahoma City staffed with trained and experienced examiners and other support personnel. They are there to help you. Searches usually are completed within 24 hours, and the results are provided by phone or fax, followed by a mailed written report.

Banks and finance companies in the business of lending money to finance the purchase of aircraft know the system well. They, too, use the AOPA services to protect themselves.

The sales closing

While a title search at the FAA Aircraft Registry goes a long way, it does not provide complete protection. For one thing, a title search speaks only as of the time it is made. Documents could have been filed with the FAA between the time the search was made and the time when a new owner takes title. Remember, you are charged with knowing what is on file as of the date and time of filing, not the date and time of your last title search.

The buyer does not want to pay for the aircraft until his ownership interest is safely filed with the FAA and the record is clear. On the other hand, a seller does not want ownership transferred out of his name until he has been paid. For similar reasons, any lienholder — for example, the seller's bank or finance company — does not want to file its release of lien until it is paid. Any new lender to the buyer is looking for similar kinds of protection.

For more complete protection, a "closing" is desirable. A closing helps ensure that the exchange of money and filing of documents take place while the record is as the parties know it. AOPA will help you set up a closing.

Escrow

Aircraft closings are more difficult than real estate closings because the parties are typically in different locations, and usually not in Oklahoma City near the FAA Aircraft Registry. This problem is overcome by an escrow service, which AOPA now provides. AOPA acts as an independent, knowledgeable, reputable third party at the FAA Aircraft Registry, acting under joint instructions of the parties to the transaction.

In a typical escrow transaction, AOPA receives the purchase money from the buyer and the buyer's lender, if there is one. Actually, the money is transferred by wire to an AOPA escrow account in a major bank. The buyer's lender also sends to AOPA a lien document for filing with the FAA. The buyer sends an application for registration. The seller sends a bill of sale, and the seller's lender, if there is one, sends a release of lien to AOPA for filing with the FAA. To accomplish all of this, the parties will give AOPA's escrow service instructions on a standard form, directing the service to file the documents and pay the funds when all is in order.

Title insurance

These laws and procedures provide a high level of protection, but they do not provide perfect protection. Title insurance provides the next higher level of protection. AOPA offers title insurance through an outside company and is currently working on an improved title insurance program for members.

Aircraft reports

From the FAA files AOPA can provide several other reports that are helpful in aircraft sale and purchase transactions.

AOPA can obtain a list of all of the airworthiness directives issued against a particular make and model of aircraft. This list can be used in a prepurchase inspection to see if the aircraft is in compliance with all of the ADs. AOPA can obtain a list of all service difficulty reports on file concerning a particular make and model of aircraft, to pinpoint problems common to the aircraft. And, AOPA can determine if a particular aircraft has been involved in an accident or incident on file with the FAA, to help you reconstruct any damage history.

The next time you think about buying or selling an aircraft, remember that AOPA has these and other services to help you. For more information on the association's title and escrow services, telephone 800/654-4700 or 301/695-2387, or fax 301/695-2375. To contact the AOPA Escrow Service directly, call 800/711-0087 or 405/682-2511, or fax 405/681-6514.

AOPA is calling on its members to take immediate action to build support for new legislation that would reform the third class medical process and provide other protections for general aviation pilots.